Iapl/113/2016 Of Pr. Commissioner Of Income Tax v. Sahara States Gorakhpur

A.F.R. Reserved Case :- INCOME TAX APPEAL Nos. - 113 of 2016Appellant :- Pr. Commissioner Of Income TaxRespondent :- Sahara States GorakhpurCounsel for Appellant :- Manu Ghildyal,Manu GhildyalCounsel for Respondent :- Archi Agarwal,Abhinav Mehrotra Connected with Case :- INCOME TAX APPEAL Nos. - 114 of 2016Appellant :- Pr. Commissioner Of Income TaxRespondent :- Sahara States GorakhpurCounsel for Appellant :- Manu Ghildyal,Manu GhildyalCounsel for Respondent :- Archi Agarwal,Abhinav MehrotraHon'ble Bharati Sapru,J.Hon'ble Piyush Agrawal,J. (Delivered by Hon'ble Piyush Agrawal, J) The present appeals have been filed against the commonorder dated 7.12.2015 passed in ITA No. 04 & C15/Alld2012 for the Assessment Year 2005-06 & 2007-08 passedby the Income Tax Appellate Tribunal, Allahabad, BenchAllahabad. The aforesaid appeals on 3.5.2016 was firstly admitted onquestion No. B, which reads as under: “(B) Whether on the facts and the circumstances ofthe case, the order of the Income Tax AppellateTribunal was correct in Law holding that Section 80-IB(10) which is substituted w.e.f. 1.4.2005 is notapplicable to the project approve before 01.04.2004.The provision of Section 80(IB)(10)(a)(i) is as suchapplicable for the all projects which has been approved by the local authority before 1.4.2004.” Thereafter, on 11.1.2017 this Hon'ble Courtaccepted and admitted one more question oflaw mentioned as 'C' in memo of appeals,which reads as under: "Whether on the facts and in the circumstances of thecase, the order of the Income Tax Appellate Tribunalwas correct in law holding that there is change ofopinion by the Assessing Officer. As such, there is no change of opinion as information regardingcompletion of project has been collected by theAssessing Officer is a new information and AssessingOfficer had correctly applied the provision of Section147/148 for reopening the assessment of A.Y. 2007-08.” In both the appeals common facts andquestion of law are involved, as well as boththe parties are agreed for disposal of theappeals by a common order. The facts of the case are that therespondent-assessee (hereinafter referred toas 'assessee') is engaged in the business ofdevelopment of land, construction of houseand its sales thereof. For the purpose offactual background the facts of theassessment year 2005-06 has been taken up. The assessee filed its return showing incomeof Rs. 59,37,200/- and claimed the deductionunder Section 80IB(10) of the Income TaxAct (hereinafter referred to as 'the Act'). The case of the assessee was selected under the scrutiny and subsequently on24.12.2007, assessment order was passedon the total income of Rs. 61,91,134/-, thenexemption as claimed by the assesseeunder Section 80-IB(10) of the Act wasallowed. Thereafter, the reassessment proceeding were initiated on the basis of someinformation received during the assessmentproceeding for the year 2006-07 that theassessee has not obtained completioncertificate within four year from LocalAuthority who have approved the project andtherefore, there was a violation of theprovision of Section 80-IB(10)(a)(i) of theAct. The assessing authority was of the opinion that since the assessee has lost the eligibility for claiming the deduction under Section80IB(10) of the Act. Therefore, the claimcannot be legally permitted, the proceedingfor reassessment were initiated for bothassessment years. Thereafter, the reassessment proceeding were initiated on the basis of someinformation received during the assessmentproceeding for the year 2006-07 that theassessee has not obtained completioncertificate within four year from LocalAuthority who have approved the project andtherefore, there was a violation of theprovision of Section 80-IB(10)(a)(i) of theAct. The assessing authority was of the opinion that since the assessee has lost the eligibility for claiming the deduction under Section80IB(10) of the Act. Therefore, the claimcannot be legally permitted, the proceedingfor reassessment were initiated for bothassessment years. The notice dated 5.6.2009 was issued underSection 148 of the Act which was servedupon the assessee on 8.6.2009. Theassessee submitted his return under proteston 8.7.2007 and further made a request forsupply the copy of reasons recorded forreopen the completed assessment. Theassessee has filed his objection on27.10.2010 pointing out that the re-assessment proceedings have been initiatedon the basis of change of opinion and theassumption of jurisdiction has been madewithout any tangible fresh material/information on record which is permissibleunder the provision of Section 147 of the Act.Notice under Section 143(2) of the Act wasissued on 10.6.2010 and thereafter noticeunder Section 142 (1) along withquestionnaire were issued on 18.6.2010 and the same was served upon the assessee on24.6.2010. Assessing authority by its re-assessment order dated 27.10.2010 has rejected theclaim of exemption under Section 80IB(10)of the Act to the Tune of Rs. 58,44,230/-. Again the aforesaid order, the assesseepreferred an appeal before Commissioner ofIncome Tax (appeals), Lucknow who vide itsorder dated 23rd September, 2011 partlyallowed the appeal but has confirmed therejection of claim under Section 80IB(10) ofthe Act. Feeling aggrieved by the said order theassessee preferred an appeal before IncomeTax appellate Tribunal who by its impugnedorder has allowed the appeal and has setaside the re-assessment proceeding anddirected the assessing authority to allow theclaim of deduction to the assessee underSection 80IB(10) of the Act. Feeling aggrieved by the impugned order therevenue has preferred the present appeals. Heard Mr. Manu Ghildyal, learned counsel for the Revenue and Mr. Archit Mehrotra,learned counsel for the assessee. It has been argued on behalf of the Revenue that Section 80IB(10) of the Act has beensubstituted by Finance Act, 2004 and a sub-section (d) in Section 80IB(10) of the Act hasbeen inserted which operates retrospectivelyand therefore the said amendment isapplicable in the case of the respondenteven though whose projects have beenapproved before 1.4.2004 and therefore theimpugned order passed by the Tribunal arenot justifiable which deserves to be setaside. It was further argued that since there is no change of opinion, Tribunal was not justifiedin allowing the appeal of the assessee anddirecting the assessing authority to grant thebenefit of Section 80IB(10) of the Act to theassessee. The reassessment proceedingwas rightly initiated. The counsel for the assessee has vehemently opposed the contention of theRevenue and has argued that the Tribunal has rightly passed the impugned order andhas further submitted that the Tribunal wasjustified in relying upon the judgment of theBombay High Court in the case of CIT vs.Brahma Associates reported in 333 ITR289 (Bombay) wherein the Bombay HighCourt has specifically held that theamendment made in Section 80IB(10)(d) ofthe Act is prospectively and notretrospectively. It was further argued that the Apex Court in the case of CIT vs. Sarkar Buildersreported in [2015] 375 ITR 392(SC) hasalso approved the judgment of the BombayHigh Court. We have perused the record of the case and The counsel for the assessee has vehemently opposed the contention of theRevenue and has argued that the Tribunal has rightly passed the impugned order andhas further submitted that the Tribunal wasjustified in relying upon the judgment of theBombay High Court in the case of CIT vs.Brahma Associates reported in 333 ITR289 (Bombay) wherein the Bombay HighCourt has specifically held that theamendment made in Section 80IB(10)(d) ofthe Act is prospectively and notretrospectively. It was further argued that the Apex Court in the case of CIT vs. Sarkar Buildersreported in [2015] 375 ITR 392(SC) hasalso approved the judgment of the BombayHigh Court. We have perused the record of the case and finds that the assessee projects wereapproved by the respective DevelopmentAuthority on April 2003 for construction of 7types of residential units comprising all 429units out of which 120 units were soldagainst Income of Rs. 83,74,72028/- and netprofit of Rs. 1,17,81,384/- has been declaredafter debating expenditure of Rs. 82,56,90,664/- on account of land anddevelopment, construction & Development,personnel & site running expenses andselling and distribution expenses etc. The assessee has claimed deduction underSection 80-IB(10) of the Act of Rs.58,44,230/- on the net profit of Rs.1,17,81,384/-. The record reveals that reassessmentproceedings have been initiated on the basisof observation made by the assessing officerduring the assessment proceeding for theassessment year 2006-07 that therespondent has not obtained completioncertificate within four years from the localauthority and has not fulfilling the conditionas stipulated under Section 80IB(10)(d) ofthe Act and therefore the assessee has losteligibility of claim deduction under Section80-IB(10) of the Act in the disputedassessment years. The Section 80-IB(10) of the Act for therelevant assessment year is quoted below: "Section 80-IB(10) prior to the amendment of 1.4.2005: "(10) amount of profits in case of an undertakingdeveloping and building housing projects approvedbefore the 3 I" day of March, 2005, by a localauthority, shall be hundred percent, of the profitsderived in any previous year relevant to anyassessment year from such housing project if,- (a) such undertaking has commenced or commencesdevelopment and construction of the housing projecton or after the 1" day of October, 1998; (b) the project is on the size of a plot of land which has minimum area of one acre; and (c) the residential unit has a minimum built up area ofone thousand square feet where such residential unitis situated within the cites of Delhi or Mumbai orwithin twenty-five kilometers from the municipal limitsof these cities and one thousand and five hundredsquare feet at any other place." From perusal of the said section which provides that only three conditions for theeligibility of the deduction under Section 80-IB(10) of the Act and in the said provisionthere is no such condition that the project inquestion should be completed and obtainedcompletion certificate with the period of fouryears. In the impugned order the Tribunal hasrecorded a finding of fact that there was nosuch requirement under the Act forcompleting the project before a particulardate and would have obtained thecompletion certificate from the LocalAuthority who have approved the project. The Bombay High Court in the case of CIT vs. Brahma Associates (Supra) hasobserved (see page 399) as under: From perusal of the said section which provides that only three conditions for theeligibility of the deduction under Section 80-IB(10) of the Act and in the said provisionthere is no such condition that the project inquestion should be completed and obtainedcompletion certificate with the period of fouryears. In the impugned order the Tribunal hasrecorded a finding of fact that there was nosuch requirement under the Act forcompleting the project before a particulardate and would have obtained thecompletion certificate from the LocalAuthority who have approved the project. The Bombay High Court in the case of CIT vs. Brahma Associates (Supra) hasobserved (see page 399) as under: " Held that clause (d) inserted to Section 80-IB(10)with effect from April 1, 2005, is prospective and notretrospective and hence could not be applied were onthe profits derived from the housing projects underSection 80-IB(10) were on the profits derived from thehousing project approved by the local authority as awhole, the Tribunal not justified in restricting theSection 80-IB (10) deduction only to a part of theproject. However, in the present case, since, theassessee has accepted the decision of the Tribunal inallowing 80-IB (10) deduction to a part of the project,the findings of the Tribunal in that behalf could not bedisturbed." Subsequently, against the judgement of theBombay High Court the revenue preferredthe SLP before the Hon'ble Supreme Court being SLP (C)- No. 24330 of 2011 andothers) the Hon'ble Supreme Court by itsjudgement and order dated 15th May, 2015has dismissed the appeal of the Revenueand has confirmed the order and judgementpassed by the Bombay High Court. Hon'ble Supreme Court in the case of CITvs. Sarkar Builders (supra)whileconsidering the bunch of cases hasobserved as under (see page 399): "We would also like to point out that following thisjudgment of the Bombay High Court, orindependently, other High Courts had also takensimilar view. Against the aforesaid judgments, specialleave petitions were filed by the Revenue in thisCourt. All these SLPs have been disposed of by thisCourt vide order dated 29.04.2015, we would like toreproduce the said order in entirety hereunder: "All these special leave petitions are filed by theRevenue/ Department of Income tax against thejudgments rendered by various High Courts decidingidentical issue which pertains to the deduction underSection 80IB(10) of the Income Tax Act, as applicableprior to 01.04.2005. We may mention at the outsetthat all the High Courts have taken identical view in allthese cases holding that the deduction under theaforesaid provision would be admissible to a "housing project". All the assessees had undertaken constructionprojects which were approved by the municipalauthorities/local authorities as housing projects. Onthat basis, they claimed deduction under Section80IB(10) of the Act. This provision as it stood at thattime, i.e., prior to 01.04.2005 reads as under: - Section 80IB(10) [as it stood prior to 01.04.2005]"(10) The amount of profits in case of an undertakingdeveloping and building housing projects approvedbefore the 31st day of March, 2005 by a localauthority, shall be hundred per cent of the profitsderived in any previous year relevant to anyassessment year from such housing project if, (a) such undertaking has commenced or commencesdevelopment and construction of the housing projecton or after the 1st day of October, 1998; (b) the project is on the size of a plot of land whichhas a minimum area of one crore; and Section 80IB(10) [as it stood prior to 01.04.2005]"(10) The amount of profits in case of an undertakingdeveloping and building housing projects approvedbefore the 31st day of March, 2005 by a localauthority, shall be hundred per cent of the profitsderived in any previous year relevant to anyassessment year from such housing project if, (a) such undertaking has commenced or commencesdevelopment and construction of the housing projecton or after the 1st day of October, 1998; (b) the project is on the size of a plot of land whichhas a minimum area of one crore; and (c) the residential unit has a maximum built-up area ofone thousand square feet where such residential unitis situated within the cities of Delhi or Mumbai orwithin twenty-five kilometres from the municipal limitsof these cities and one thousand and five hundredsquare feet at any other place." However, the incometax authorities rejected the claim of deduction on theground that the projects were not "housing project"inasmuch as some commercial activity was also undertaken in those projects. This contention of theRevenue is not accepted by the income tax AppellateTribunal as well as the High Court in the impugnedjudgment. The High Court interpreted the expression"housing project" by giving grammatical meaningthereto as housing project is not defined under theIncome Tax Act insofar as the aforesaid provision isconcerned. Since sub-section (10) of Section 80IBvery categorically mentioned that such a projectwhich is undertaken as housing project is approvedby a local authority, once the project is approved bythe local authority it is to be treated as the housingproject. We may also point out that the High Courthad made observations in the context of DevelopmentControl Regulations (hereinafter referred to as 'DCRs'in short) under which the local authority sanctions thehousing projects and noted that in these DCRs itself,an element of commercial activity is provided but thetotal project is still treated as housing project. On thebasis of this discussion, after modifying some of thedirections given by the ITAT, the conclusions whichare arrived at by the High Court are as follows: - "30. In the result, the questions raised in the appealare answered thus:- a) Upto 31/3/2005 (subject to fulfilling otherconditions), deduction under Section 80IB(10) isallowable to housing projects approved by the localauthority having residential units with commercialuser to the extent permitted under DC Rules/Regulations framed by the respective localauthority b) …... c) ….. d) …... (See page 401) e) Clasue (d) inserted to section 80-IB(10) with effectfrom April 1, 2005, is prospective and notretrospective and, hence, cannot be applied for theperiod prior to 2005. We are in agreement with the aforesaid answergiven by the High Court to the various issues.”(See page 402) "...................In the aforesaid scenario, we revert backto the question that is to be answered. We havealready pointed out that the parties are ad idem thatthe amendment is prospective in nature and,therefore, it operates from 01.04.2005. We have alsomentioned that in the instant appeals, all theseassessees had got the housing projects sanctionedprior to 01.04.2005 and the construction of the saidhousing project also started before 01.04.2005. Allother conditions mentioned namely the date by whichapproval was to be given and the dates by which theprojects were to be completed as on the date whenthe project was sanctioned, are also met by theassessees......." (See page 404) "...... The Revenue had argued that clause (d)inserted with effect from 01.04.2005 should beapplied retrospectively, which argument was repelled (See page 404) "...... The Revenue had argued that clause (d)inserted with effect from 01.04.2005 should beapplied retrospectively, which argument was repelled by the High Court. Therefore, for betterunderstanding, we would like to begin our discussionwith the meaning given to 'housing project' along withthe issue of retrospectivity of clause (d), as raised bythe Revenue, which was dealt with by the High Courtand repelled. That portion of the discussion containedin the High Court judgment, which has some bearingon the issue at hand, runs as under: "21. Thus, on thedate on which the legislature introduced 100%deduction under the Income Tax Act, 1961 on theprofits derived from housing projects approved by alocal authority, it was known that the local authoritiescould approve the projects as houding projects withcommercial user to the extent permitted under the DCRules framed by the respective local authority. Inother words, it was known that the local authoritiescould approve a housing project without or withcommercial user to the extent permitted under theDevelopment Control Rules. If the legislatureintended to restrict the benefit of deduction only to theprojects approved exclusively for residentialpurposes, then it would have stated so. However, thelegislature has provided that Section 80IB(10)deduction is available to all the housing projectsapproved by a local authority. Since the localauthorities could approve a project to be a housing project with or without the commercial user, it isevident that the legislature intended to allow Section80IB(10) deduction to all the housing projectsapproved by a local authority without or withcommercial user to the extent permitted under the DCRules. 22. It is not in dispute that where a project isapproved as a housing project without or withcommercial user to the extent permitted under theRules/Regulations, then, deduction under Section80IB(10) would be allowable. In other words, if aproject could be approved as a housing projecthaving residential units with permissible commercialuser, then it is not open to the income tax authoritiesto contend that the expression 'housing project' inSection 80IB(10) is applicable to projects having onlyresidential units. 23. Once it is held that the local authorities couldapprove a project to be housing project without orwith the commercial user to the extent permittedunder the DC Rules, then the project approved withthe permissible commercial user would be eligible forSection 80IB(10) deduction irrespective of the factthat the project is approved as 'housing project' orapproved as 'residential plus commercial'. In otherwords, where a project fulfills the criteria for beingapproved as a housing project, then deduction cannotbe denied under Section 80IB(10) merely becausethe project is approved as 'residential plus commercial'. 23. Once it is held that the local authorities couldapprove a project to be housing project without orwith the commercial user to the extent permittedunder the DC Rules, then the project approved withthe permissible commercial user would be eligible forSection 80IB(10) deduction irrespective of the factthat the project is approved as 'housing project' orapproved as 'residential plus commercial'. In otherwords, where a project fulfills the criteria for beingapproved as a housing project, then deduction cannotbe denied under Section 80IB(10) merely becausethe project is approved as 'residential plus commercial'. 24. The fact that the deduction under Section80IB(10) prior to 1.4.2005 was allowable on theprofits derived from the housing projects constructedduring the specified period, on a specified size of theplot with residential units of the specified size, itcannot be inferred that the deduction under Section80IB(10) was allowable to housing projects havingresidential units only, because, restriction on the sizeof the residential unit is with a view to make availablelarge number of affordable houses to the commonman and not with a view to deny commercial user inresidential buildings. In other words, the restrictionunder Section 80IB(10) regarding the size of theresidential unit would in no way curtail the powers ofthe local authority to approve a project withcommercial user to the extent permitted under the DCRules/Regulations. Therefore, the argument of theRevenue that the restriction on the size of theresidential unit in Section 80IB(10) as it stood prior to1.4.2005 is suggestive of the fact that the deduction isrestricted to housing projects approved for residentialunits only cannot be accepted. 25. The above conclusion is further fortified by Clause(d) to Section 80IB(10) inserted with effect from1.4.2005. Clause (d) to Section 80IB(10) insertedw.e.f. 1.4.2005 provides that even though shops andcommercial establishments are included in thehousing project, deduction under Section 80IB(10) with effect from 1.4.2005 would be available wheresuch commercial user does not exceed five per centof the aggregate built- up area of the housing projector two thousand square feet whichever is lower. ByFinance Act, 2010, clause (d) is amended to theeffect that the commercial user should not exceedthree percent of the aggregate built-up area of thehousing project or five thousand square feetwhichever is higher. The expression 'included' inclause (d) makes it amply clear that commercial useris an integral part of housing project. Thus, byinserting clause (d) to Section 80IB(10)the legislaturehas made it clear that though the housing projectsapproved by the local authorities with commercialuser to the extent permissible under the DCRules/Regulation were entitled to Section 80IB(10)deduction, with effect from 1.4.2005 such deductionwould be subject to the restriction set out in clause (d)of Section 80IB(10). Therefore, the argument of therevenue that with effect from 1.4.2005 the legislaturefor the first time allowed Section 80IB(10) deductionto housing projects having commercial user cannot beaccepted. 29. Lastly, the argument of the revenue that Section80IB(10) as amended by inserting clause (d)with effect from 1.4.2005 should be appliedretrospectively is also without any merit,because, firstly, clause (d) specifically insertedwith effect from 1.4.2005, and therefore, that80IB(10) as amended by inserting clause (d)with effect from 1.4.2005 should be appliedretrospectively is also without any merit,because, firstly, clause (d) specifically insertedwith effect from 1.4.2005, and therefore, that 29. Lastly, the argument of the revenue that Section80IB(10) as amended by inserting clause (d)with effect from 1.4.2005 should be appliedretrospectively is also without any merit,because, firstly, clause (d) specifically insertedwith effect from 1.4.2005, and therefore, that80IB(10) as amended by inserting clause (d)with effect from 1.4.2005 should be appliedretrospectively is also without any merit,because, firstly, clause (d) specifically insertedwith effect from 1.4.2005, and therefore, that clause cannot be applied for the period prior to1.4.2005. Secondly, clause (d) seeks to denySection 80IB(10) deduction to projects havingcommercial user beyond the limit prescribedunder clause (d), even though such commercialuser is approved by the local authority.Therefore, the restriction imposed under the Actfor the first time with effect from 1.4.2005 cannotbe applied retrospectively. Thirdly, it is not opento the revenue to contend on the one hand thatSection 80IB(10)as stood prior to 1.4.2005 didnot permit commercial user in housing projectsand on the other hand contend that therestriction on commercial user introduced witheffect from 1.4.2005 should be appliedretrospectively. The argument of the revenue ismutually contradictory and hence liable to berejected. Thus, in our opinion, the Tribunal wasjustified in holding that clause (d) inserted toSection 80IB(10) with effect from 1.4.2005 isprospective and not retrospective and hencecannot be applied to the period prior to1.4.2005." The issues dealt with from paras 21 to 25 by theHigh Court already stands approved by thisCourt. In para 29, the High Court has held thatclause. (d) has prospective operation, viz., witheffect from 01.04.2005, and this legal position isnot disputed by the Revenue before us. What follows from the above is that prior to 01.04.2005, these developers/assessees whohad got their projects sanctioned from the localauthorities as 'housing projects', even withcommercial user, though limited to the extentpermitted under the DC Rules, were convincedthat they would be getting the benefit of 100%deduction of their income from such projectsunder Section 80IBof the Act..." In view of the observation of the Hon'ble Apex Court, we are of the opinion that theprojects which were approved prior to1.4.2005 the applicability of Section 80IB(10)(d), of the Act is not permitted. In otherwords, Section 80(IB)(10)(d) of the Act willbe applicable prospectively and notretrospectively. Once it has come on record by fact findingAuthority also that there is no such conditionto have completion certificate within fouryears from the local authority grantingapproval of the projects in question, thereassessment proceedings taken against theassessee are bad and against the settledprinciple of law. Therefore, the Tribunal has rightly set asidethe re-assessment proceeding and directedthe assessing authority to grant benefit ofSection 80IB(10) of the Act to the assessee. In view of the above facts and circumstancesof the case the question of law are answeredin favour of assessee and against theRevenue. The appeals are, accordingly, answered. Both the appeals fail and are thereforedismissed. Copy of this order be placed in the connected Income Tax Appeal No. 114 of2016. Order Date :- 19.8.2019 SY